Bad Apple? The tech giant has become a victim of its own success

Competition from rivals puts the brakes on its previous levels of growth

When a company's share price slumps more than 11 per cent, something must be very, very wrong. Profits and sales must have cratered. Its finances must be a mess.

And yet, on the face of it, Apple, whose shares suffered such a fate following the release of its quarterly earnings, seems to be doing just fine.

The Californian tech giant posted $13.1bn (£8.3bn) in net profits for the final three months of last year late on Wednesday, a result which most companies, as well as those who invest in them, would be rather glad about. Moreover, it said it had shifted a record number of iPhones during the period – 47.8 million, to be exact, nearly 11 million more than in 2011. iPads, too, did well, with the business selling nearly 23 million, against 15.4 million previously. The shares, however, crashed like a badly damaged smartphone. Why? In a word, growth.

In this, Apple has become a victim of its own success. Over the last decade, helmed for most of it by the late Steve Jobs, who had perhaps the most finely honed sense of marketing in American business, the company produced an array of best-selling products. Flashy Macs that forever changed the dull grey-box aesthetic that until then had defined the personal computer; the iPod and the accompanying iTunes software, which set the tone of the digital-music market; and then the iPhone and the iPad, which did the same in the fast-growing area of smartphones and tablets. Though it's become a cliché, they were ground-breaking.

The market couldn't get enough. Beginning in April 2003, Apple beat analyst estimates for earnings for 34 consecutive quarters, according to figures complied by Bloomberg. Its stock, worth around $6.50 at the time, had, by last September, reached a stunning peak of more than $700 apiece as it grew to become the world's most valuable company with a cash pile of some $137bn, more than the GDP of a few governments.

The market got used to Apple's success. And unfortunately for Tim Cook, who took over from Mr Jobs in 2011, he came into the job just as the company was beginning to face some real competition from rivals such as Samsung, which has been garnering kudos for its Galaxy range of smartphones and tablets, available at a wide variety of prices. Taken together, Apple and Samsung account for around half the global market for smartphones.

Powered by Google's Android operating system, the Galaxy range has been instrumental in driving up the South Korean firm's smartphone market share in recent quarters, leaving Apple behind. Figures published earlier this month by the New York-based market-research firm ABI predicted that, while Samsung had boosted its market share from 8 per cent to more than 30 per cent since 2010, Apple's would likely peak at 22 per cent this year, and remain flat though 2018.

"Barring an unlikely collapse in Samsung's business, even Apple will be chasing Samsung's technology, software, and device leadership in 2013 through the foreseeable future," the ABI analyst Michael Morgan said.

As if to underline concerns, reports earlier this month suggested that Apple was cutting orders for iPhone 5 components in the face of what was said to be weaker than expected demand.

A gambit last year to reclaim momentum with the new iPad mini, as consumers shift to mobile devices with screens bigger than the iPhone but smaller than the original iPad, has failed to quell concerns, as questions are asked of the impact on sales of its big brother.

The biggest question, though, is whether Apple can continue to come up with new products of the kind that have underpinned its growth over the last decade or so.

Trip Chowdhry, a managing director at Global Equities Research, summed up the challenge shortly after the latest earnings were released, telling Reuters: "Apple will need to innovate. It has two or three product lines that are doing OK. But they need to come up with new phones and get the innovation going. The iPhone is coming toward the end of its life and they need a completely new device soon – in months, not years."

Mr Cook did his best to allay these concerns this week, saying: "We are working on some incredible stuff. The pipeline is chock-full. I don't want to comment about a specific product, but we feel great about what we have got in store."

The market's response has been uncompromising. "It better be great," investors seemed to be saying as Apple's stock fell 11 per cent in early afternoon trading.

Some have even questioned Mr Cook's leadership. Peter Cohan, who runs a venture capital firm, this week mooted Jonathan Ive, Apple's long-standing design guru, as a replacement for Mr Cook, who is known for building Apple's supply chain in the years that Mr Jobs was in charge.

In fact, the pressure on Mr Cook had been rising long before this week's figures. The peak of $700-plus looks like ancient history now, with the stock now well below $500, and closer to $450 midway through the session. Earlier in the day, no less than 14 brokerages – everyone from Barclays Capital, Mizuho Securities USA, Credit Suisse and Deutsche Bank to Raymond James, Robert W Baird & Co and Canaccord Genuity – scaled back their price targets for Apple stock.

Speaking on a conference call after this week's results, Mr Cook pointed out that 24 January marked a milestone for Apple. It was on this day in 1984 that "Steve introduced the first Macintosh right here at a shareholder meeting in Cupertino", he said, adding: "On the evening news that night, they said it was supposed to be one of the easiest computers to use, and thanks to the new mouse, you hardly have to touch the keyboard."

The headlines were very, very different.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
News
news

The party's potential nominations read like a high school race for student body president

Voices
A mother and her child
voices
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
ebooks
ebooksA special investigation by Andy McSmith
News
i100
News
people
Sport
Chelsea manager Jose Mourinho
footballI have never seen the point of lambasting the fourth official, writes Paul Scholes
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee